Higher California wine grape prices expected to continue

Sustainable prices for California wine grape growers will continue for at least the next three years.
Many wineries believe the wine grape supply will be short for the next three to five years.
Varietal grape prices have rebounded to levels last seen in the pre-surplus days in the mid-to-late 1990s.
Consumer demand for wine has jumped 10 percent to 12 percent so far this year. If this growth trend continues, grape prices could trend higher.

Sustainable prices for California wine grape growers will continue for at least the next three years, said Jeff Bitter of Allied Grape Growers.

“I think California wine grape growers will enjoy good strong prices for the next three years or so. I don’t know if they’ll jump up another 25 to 50 percent (from current prices). That remains to be seen.”

Many wineries believe the wine grape supply will be short for the next three to five years. Over the last decade plus, California’s wine grape industry has mimicked a one-way yo-yo, with lots of downward action with little upward movement. Since last year, this has changed as wine grape growers now enjoy higher prices.

“We’re coming out of a period of a chronic wine grape surplus in California to a position today of balanced inventories,” said Bitter, seated in his leather office chair at Allied’s home office in Fresno, Calif., in mid May.

“In addition, we’re also on the cusp of a shortage. When you apply the law of supply and demand, these factors point to the economically sustainable production of California wine grapes.”

Bitter is a 15-year Allied Grape Growers’ veteran; the last decade serving as vice-president alongside Allied President Nat DiBuduo. Bitter is a fourth-generation Central Valley grape grower, who along with his wife April, owns and operates a 40-acre vineyard in Madera.

Allied is a 61-year-old, grower-owned cooperative which markets wine grapes for about 600 mostly small wine grape growers located across California. The co-op markets members’ grapes to wineries, but does not buy grapes from its members.

Looking at Central Valley wine grape prices, Bitter says varietal grape prices have rebounded to levels last seen in the pre-surplus days in the mid-to-late 1990s.

“We’re not necessarily talking about all-time price highs today for Central Valley growers. Growers are just barely able to make it for the first time in a decade,” Bitter said.

California’s estimated 4,600 wine grape growers continue to pinch their skin to determine if current higher wine grape prices are real or a mere dream. Pinch no more.

Wine grape growers watched prices fall like an anvil from 2000 to 2010 amid times of crop overproduction plus consumer cutbacks during the economy-stifling Great Recession. The premium wine grape industry experienced especially difficult times from late 2008 through 2010.

California growers produce about 10 percent of the world’s wine grape crop – about 3.5 million tons of wine grapes on average annually.

Price breakdown

The current price rebound began last year and future prices appear promising. Bitter broke down his 2012 Central Valley price vision into the varietal, generic, and floral wine grape categories.

Bitter says Central Valley varietals are selling for a minimum of $400 per ton to $600 per ton on the spot market with long-term contracts offered at those prices as well. Specific varietal prices include Chardonnay in the $500 per ton to $600 per ton range, Cabernet Sauvignon from $550 to $600-plus per ton, and Merlot in about the same range.

Generic wine grapes for this crop year (Central Valley) can bring $300 per ton to $400 per ton; prices not seen since the late 1990s. Prices for several generics include French Colombard at $325 per ton to $350 per ton, Barbera/Carignane at about $400 per ton, and Ruby Cabernet at $400 per ton or more.
For floral (light sweet) wine grapes, Bitter predicts Central Valley prices from $400 per ton to $600 per ton. Muscat of Alexander grapes currently fetch $400 to $500 per ton, Muscat Canelli lassos $500 per ton or more, and Symphony grapes deliver $450 per ton to $500 or more per ton.

Floral wines are currently very popular with consumers; especially with the Millennial generation (Generation Y) – those born since the late 1970s. While the varietal Chablis wine was popular in the 1970s and 1980s, floral wines are gaining favor type with Millennials. About half of the Millennial generation is of legal-drinking age today.

“With 12 to 15-tons-per-acre yield potential, floral grapes can generate $4,600 per acre to $6,000 per acre in gross revenue to the grower,” Bitter said. “That’s certainly enough to make a profit.”

Typical grower-winery wine grape contracts are single year or three-to-five-year documents. Some wineries are pursuing production contracts where growers plant additional acres with prices locked in for 12-to-15 years including price minimums.

“Wineries want to lock in their needed supply of wine grapes into a contract to make sure they don’t lose the grapes to a competitor,” Bitter said. “This is the reason for longer-term contracts today with minimum prices. Many growers have five or six wineries bidding for their 2012 crop versus the traditional one or two wineries.”

Today’s prices compare to less than $100 per ton for some varieties from 2001 to 2003. Some grapes were left on the vine and never harvested.

“There were spot markets for $65 per ton to $90 per ton – prices one quarter of today’s prices,” Bitter said. “Those growers suffered tremendously during the three-year period. It didn’t matter if you grew grapes in Fresno or Lodi – that was the value. We’ve rebounded quite a bit today.”

Bitter says today’s higher prices translate to more economic sustainability for growers. “Wine grape prices jumped last year and this year. Current prices are now at the level which most growers consider sustainable. If California has a good-sized wine grape crop this year and re-fills the winery, we’ll probably see prices plateau a little bit."

This shifted total California wine grape acreage — estimated at about 525,000 acres today (bearing and non-bearing) — from traditional statewide production at 60 percent in the Central Valley and 40 percent in the Coastal regions to more of a 50-50 split.

Recent consecutive back-to-back years of short crops on the North Coast have helped reduce supplies to bring supply and demand back into sync.

“Now we’re getting back on track on the high end of the market through shorter crops and increased demand for premium wine,” Bitter said. “We hope consumers will continue to respond positively in premium wine consumption.”

Bitter predicts wine grape acreage will shift to 53 percent to 54 percent production in the interior areas and 46 percent to 47 percent in Coastal areas by 2014 or 2015.